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Does Facebook Generate Over Half of Its Ad Revenue From Fake News?

Fake news has been in the news. But one important question about fake news has not yet been answered: How much revenue would Facebook sacrifice if it purged fake news from its site?

Sadly, I can't provide a reliable figure -- but a BuzzFeed News analysis of top fake news traffic before the election suggests that the proportion of time that users spent on fake -- as opposed to real news -- on Facebook was considerable.

However, if the amount of revenue attributable to fake news is significant, I can see why Mark Zuckerberg does not want to rid Facebook of fake news -- which the Chrome Extension B.S. Detector developed by web designer Daniel Sieradski could flag with a red banner that reads “this website is considered a questionable source,” according to Vocativ.

A Facebook spokesman told BuzzFeed News that the top stories don’t reflect overall engagement on the platform. According to the spokesman, “There is a long tail of stories on Facebook. It may seem like the top stories get a lot of traction, but they represent a tiny fraction of the total.”

As the New York Times pointed out, a great example is the fake news based on a tweet of a November 9 photograph of a bus in Austin, Tex. that supposedly had transported paid protestors of the recent election outcome. That tweet was shared 350,000 times on Facebook -- and an article based on the November 11 correction -- noting that the bus was being used for a Tableau Software business conference -- was shared a paltry 3,500 times.

Fake news works -- in the sense of generating lots of shares -- because of confirmation bias -- the irrational tendency of people to embrace information that reinforces their beliefs and to reject information that challenges them.

Confirmation bias combined with low entry barriers -- that is the very low barriers to starting a new blog -- help me understand why it is possible for people with different beliefs to consume only content that makes them feel good. I am guessing here that every time people read a story that confirms what they already believe, they receive a shot of dopamine.

In short, fake news works for Facebook. But how much revenue does fake news generate for the social network? Howard Yu noted that Facebook generated $7 billion in third quarter revenue from two million monthly advertisers seeking to reach its 1.6 billion users -- noting that fake news accounted for more shares, reaction, and comment than real news.

How much more? Fake news got 54.2% of the action to real news's 45.8%. How so? Buzzfeed noted that at key points in the election campaign, the top 20 fake news stories generated 8,711,000 shares, reactions, and comments on Facebook while the top 20 real stories only garnered 7,367,000 shares, reactions, and comments there.

Does this mean that 54.2% of Facebook's advertising revenue can be attributed to fake news? Given that users spend time on the site doing things other than read news, I would guess that the amount of ad revenue that Facebook gets from fake news is probably well below half.

While some of Facebook's advertising is sold on an impression basis, most is sold on the basis of a cost per click. For each session a user spends on Facebook, there is a certain probability the user will click on an ad.

To estimate how much revenue is attributable to fake news, an analyst would need to know how much time the user spent communicating with friends (messenger, photos, etc.), conducting commerce (brand pages) and reading news (both real and fake). It might be possible to estimate how much Facebook ad revenue comes from fake news by multiplying the proportion of time the user spends reading the fake news by Facebook's total ad revenue.

If Facebook were to eliminate fake news, would it lose ad revenue?

Edelman can envision a scenario in which Facebook does not lose much revenue if it gets rid of fake news. "If Facebook managed to take out all the fake news, maybe they’d show more real news, get nearly as many hours of user activity, and still show just as many ads and get as many ad clicks,” explained Edelman.

I do not know the answer to the question in the title of this post -- but I am hoping that Facebook will provide the real answer to the amount of money it makes from fake news.

I ditched corporate America in 1994 and started a management consulting and venture capital firm (http://petercohan.com). I began following stocks in 1981 when I was in

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I ditched corporate America in 1994 and started a management consulting and venture capital firm (http://petercohan.com). I began following stocks in 1981 when I was in grad school at MIT and first analyzed tech stocks as a guest on CNBC in 1998. I became a Forbes contributor in April 2011. My 14th book -- published in February 2019 -- is "Scaling Your Startup: Mastering the Four Stages from Idea to $10 Billion." I appeared eight times in the 2016 documentary: "We The People: The Market Basket Effect." (http://www.themarketbasketeffect.com/). I also teach business strategy and entrepreneurship at Babson College in Wellesley, Mass. (http://www.babson.edu/Academics/faculty/profiles/Pages/Cohan-Peter.aspx)